Draper Cleaning Services Pty Ltd

[2010] FWA 9520

[2010] FWA 9520

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement

Draper Cleaning Services Pty Ltd
(AG2010/15065)

DEPUTY PRESIDENT BARTEL ADELAIDE, 10 DECEMBER 2010

Draper Cleaning Services Pty Ltd Enterprise Agreement 2010.

[1] An application for approval of an enterprise agreement known as the Draper Cleaning Services Pty Ltd Enterprise Agreement 2010 (the Agreement) has been made by Draper Cleaning Services Pty Ltd (the employer). The application has been made pursuant to s.185 of the Fair Work Act 2009 (the Act). The Agreement is a single enterprise agreement.

[2] Proceedings relating to the approval of the agreement were conducted on 10 November 2010, at which time I raised a number of matters with Mr Draper, Director, and his representative, Ms Krollig, Senior Advisor with South Australian Management Support (SAMS). At the conclusion of the proceedings a further period of time was allowed for the employer to provide any additional information as deemed appropriate. On 30 November, the tribunal received correspondence from SAMS addressing the issues raised at the hearing, together with letters of support signed by the employees and a redrafted agreement.

[3] The relevant employees are covered by the Cleaning Services Award 2010 (the modern award), and the Agreement provides that the terms of the modern award form part of this Agreement.

The key issues

[4] There were four substantive issues raised with the employer, three of which concern the requirement under s.186(2)(d) of the Act that the Agreement pass the better off overall test and one matter relating to the requirement under s.186(2)(c) of the Act that the terms of the Agreement do not contravene s.55 of the Act which deals with the interaction between the National Employment Standards (NES) and enterprise agreements.

[5] The Agreement provides that a full-time employee works an average of 38 hours per week over a 12 month period and that overtime is to be paid at the rate set out in the modern award. 1 Clause 12.3 of the modern award provides that a full time employee works an average of 38 hours per week. The arrangement of working hours under the modern award does not include averaging over twelve months, but specifies 4 options in cl 24.1(c) as follows:

• A defined 38 hour week, with 7.6 hours worked on any five days between Monday to Sunday inclusive;



• 19 day month of 8 hours per day;



• 152 hours within a work cycle of 28 consecutive days where the method of banking rostered days off is implemented; or



• By mutual agreement between the employer and the majority of employees, employees may be rostered up to 10 hours per day, thus enabling a week day off to be taken more frequently than would otherwise apply.

[6] Clause 25 of the modern award provides that a roster showing the normal start and finish times and the name of each employee must be prepared by the employer and posted in an accessible and conspicuous place for the employees. Clause 28.5 specifies, inter alia, that all time worked outside the rostered hours is overtime. 2

[7] The first issue is one of reconciling the operation of the Agreement with the operation of the Award in circumstances where overtime under the award is based on hours’ arrangements which are overridden by the terms of the Agreement. The employer’s response on this issue was to suggest that the hours provisions of the modern award could be applied via an undertaking. It then became apparent that the Agreement provision averaging hours over 12 months was suggested to the employer by their representative on the basis that this is an often used provision for other clients of SAMS. 3 There is no material before Fair Work Australia (FWA) to indicate that the averaging over 12 months was a provision actively sought by the employer or that it is of any benefit to the employer and/or employees. As such, the inclusion of this provision has needlessly added to the complexity of the approval process before me. An undertaking pursuant to s.190 of the Act would address this matter.

[8] The second issue concerns part time employees. The modern award provides that one of the criteria for a part time employee is payment of an allowance of 15% of the hourly rate, which allows the employer to roster the part time employee up to 7.6 hours per day, five days per week or 38 hours per week without the payment of overtime. 4 No such provision is included in the Agreement, and the base rate for part time and full time employees is the same, reflecting the rate for a Cleaning Service Employee Level 1 under the modern award. The employer advised that if a part-time employee is rostered to work in excess of the contracted hours the employee would receive either overtime or the 15% allowance for the additional hours.5 Such a scheme of payments is inferior to the provisions of the modern award.

[9] The third issue relates to the classification definition for a Level 1 employee under the Agreement, which was said to reflect the definition for a Cleaning Service Employee Level 1 in the modern award. However Level 1 in the Agreement contains functions which are contained in the definition of a Cleaning Service Employee Level 2 in the modern award. Ms Krollig has suggested that these functions be removed, as they are not performed by cleaners in any event. 6 This again begs the question as why such provisions were included in the Agreement in the first place. An undertaking in appropriate terms would address this concern.

[10] The final issue relating to the terms of the Agreement concerns an arrangement whereby a 14% loading is added to the base rate of pay for permanent employees and such employees do not receive payment when annual leave is taken or for public holidays not worked.

[11] The employer argued that the loading on the base rate is included in accordance with the wishes of the employees, who prefer a higher hourly rate of pay. In this regard, 11 letters signed by employees identified the loaded rate as their preferred arrangement. It is clear that the letters were prepared by or on behalf of the employer, since they were typed and in identical terms. The letter states, in part, that:

“[the Agreement]. continues my preferred arrangement as a Permanent Employee to be paid a higher rate of pay that includes payment of a Holiday Loading that pays me for my Annual Leave, Leave Loading, Personal Leave and Public Holiday Ordinary Hours.” (emphasis added)

[12] There is no reference in the Agreement to a loading in lieu of payment for personal leave, and I understand that the relevant modern award provision would apply. The letter therefore contains an error, which none of the employees have apparently realised. This raises concerns about their level of understanding of the loading and the application of the modern award.

[13] Section 180 of the Act deals with the provision of materials to employees in advance of voting on a proposed agreement. Section 180(2) of the Act provides that:

“(2) The employer must take all reasonable steps to ensure that:

(a) during the access period for the agreement, the employees (the relevant employees) employed at the time who will be covered by the agreement are given a copy of the following materials:

(i) the written text of the agreement;

(ii) any other material incorporated by reference in the agreement; or

(b) the relevant employees have access, throughout the access period for the agreement, to a copy of those materials.”

[14] Employees were not provided with a copy of the modern award. Ms Krollig stated that the employees were advised of the title of the modern award, and that if they had any questions that the employer was unable to answer they could contact SAMS. She stated that employees were also advised of FWA’s website address and phone number and that the employees were made aware that a copy of the modern award could be obtained from the employer’s office.

[15] The access to relevant materials referred to in s.180(2)(b) of the Act is not access ‘at large’ but must be reasonable access having regard to the circumstances of the employees and in the context of their employment arrangements. Contract cleaning is conducted on premises which are not the property or under the control of the employer. Cleaners commence and finish ‘on the job’ and do not attend the employer’s premises as part of their day to day employment. The employees covered by the Agreement were not represented by an employee organisation nor were any employees appointed as bargaining representatives. Having regard to these matters, I am not satisfied that that the relevant employees had access to the modern award in the manner intended by the Act.

Does the non-payment of annual leave and public holidays contravene s.55 of the Act?

[16] The employer characterises the 14% loading as payment in advance for the relevant entitlements. It is contended that this loading is of benefit to employees and accommodates their request regarding the time at which they will be paid for their annual leave and leave loading. 7 It is submitted that the annual leave arrangements supplement the NES for annual leave and are consistent with s. 55(4)(b) of the Act which provides that a modern award or enterprise agreement may include terms that supplement the NES. I take this submission to apply also to the Agreement provisions relating to Public Holidays.

[17] Sections 55 and 56 of the Act deal with the interaction between the NES and a modern award or enterprise agreement. These sections are as follows:

“55 Interaction between the National Employment Standards and a modern award or enterprise agreement

National Employment Standards must not be excluded

(1) A modern award or enterprise agreement must not exclude the National Employment Standards or any provision of the National Employment Standards.

Terms expressly permitted by Part 2-2 or regulations may be included

(2) A modern award or enterprise agreement may include any terms that the award or agreement is expressly permitted to include:

(a) by a provision of Part 2-2 (which deals with the National Employment Standards); or

(b) by regulations made for the purposes of section 127.

Note: In determining what is permitted to be included in a modern award or enterprise agreement by a provision referred to in paragraph (a), any regulations made for the purpose of section 127 that expressly prohibit certain terms must be taken into account.

(3) The National Employment Standards have effect subject to terms included in a modern award or enterprise agreement as referred to in subsection (2).

Note: See also the note to section 63 (which deals with the effect of averaging arrangements).

Ancillary and supplementary terms may be included

(4) A modern award or enterprise agreement may also include the following kinds of terms:

(a) terms that are ancillary or incidental to the operation of an entitlement of an employee under the National Employment Standards;

(b) terms that supplement the National Employment Standards;

but only to the extent that the effect of those terms is not detrimental to an employee in any respect, when compared to the National Employment Standards.

Note 1: Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:

(a) under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or

(b) that specify when payment under section 90 for paid annual leave must be made.

Note 2: Supplementary terms permitted by paragraph (b) include (for example) terms:

(a) that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or

(b) that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer’s leave at a rate of pay that is higher than the employee’s base rate of pay (which is the rate required by sections 90 and 99).

Note 3: Terms that would not be permitted by paragraph (a) or (b) include (for example) terms requiring an employee to give more notice of the taking of unpaid parental leave than is required by section 74.

Enterprise agreements may include terms that have the same effect as provisions of the National Employment Standards

(5) An enterprise agreement may include terms that have the same (or substantially the same) effect as provisions of the National Employment Standards, whether or not ancillary or supplementary terms are included as referred to in subsection (4).

Effect of terms that give an employee the same entitlement as under the National Employment Standards

(6) To avoid doubt, if a modern award includes terms permitted by subsection (4), or an enterprise agreement includes terms permitted by subsection (4) or (5), then, to the extent that the terms give an employee an entitlement (the award or agreement entitlement) that is the same as an entitlement (the NES entitlement) of the employee under the National Employment Standards:

(a) those terms operate in parallel with the employee’s NES entitlement, but not so as to give the employee a double benefit; and

(b) the provisions of the National Employment Standards relating to the NES entitlement apply, as a minimum standard, to the award or agreement entitlement.

Note: For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave will apply, as a minimum standard, to 4 weeks of that leave.

Terms permitted by subsection (4) or (5) do not contravene subsection (1)

(7) To the extent that a term of a modern award or enterprise agreement is permitted by subsection (4) or (5), the term does not contravene subsection (1).

Note: A term of a modern award has no effect to the extent that it contravenes this section (see section 56). An enterprise agreement that includes a term that contravenes this section must not be approved (see section 186) and a term of an enterprise agreement has no effect to the extent that it contravenes this section (see section 56).

56 Terms of a modern award or enterprise agreement contravening section 55 have no effect

A term of a modern award or enterprise agreement has no effect to the extent that it contravenes section 55.”

[18] The Explanatory Memorandum to the Fair Work Bill 2008 states, in relation to s.55(4) of the Act, that:

“214. This provision allows modern awards and enterprise agreements to deal with machinery issues (such as when payment for leave must be made). It also allows awards to provide more beneficial entitlements than the minimum standards provided by the NES. For example, an award or agreement could provide for more beneficial payment arrangements for periods of leave, or provide redundancy entitlements to employees of small business employers. Similarly, an agreement could provide a right to flexible working arrangements. The term about a dispute settlement procedure would also apply to that right.”

[19] The NES for annual leave consistently refers to “paid annual leave” and contemplates the cashing out of paid annual leave. It provides that an employer will not reasonably refuse a request by an employee to take paid annual leave. 8 The provision of the NES dealing with payment for annual leave includes the following:

“90 Payment for annual leave

(1) If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay forthe employee’s ordinary hours of work in the period.”

[20] This section clearly links the payment for annual leave to the time that the leave is taken. In addressing the provisions for payment of annual leave, the Explanatory Memorandum states that:

“Clause 90 – Payment for annual leave

370. Subclause 90(1) entitles an employee to be paid at their base rate of pay (as defined in clause 16) for the employee’s ordinary hours of work for the period of their absence on leave. (The meaning of ordinary hours of work and base rate of pay are outlined at the beginning of this Part.)

371. This is a minimum entitlement and would not prevent an employer and employee from agreeing to, or an award or enterprise agreement providing for, more generous payment terms.”

[21] Where paragraph 214 of the Explanatory Memorandum and the note to s.55(4) of the Act refer to the timing of the payment for annual leave as an example of a provision that is allowable under s.55(4) of the Act, it is implicit that annual leave must attract a payment in its own right and not be traded for a higher hourly rate of pay. The exchange of paid annual leave for a higher base rate of pay is not a machinery provision, but one that fundamentally alters the character of annual leave as a paid leave entitlement. Payment of a loaded rate in lieu of paid annual leave would operate as a loading in lieu of a minimum NES entitlement, and cannot be regarded as ancillary, incidental or supplemental to the terms of the NES as required by s.55(4) of the Act.

[22] To the extent that I am required to make a determination as to whether the relevant terms of the Agreement reflect terms that have the same or substantially the same effect as the provisions of the NES, I conclude that they do not. In Or-Tak Pty Ltd and Lida ACMI Pty Ltd 9 the issue of a loaded rate of pay in lieu of payment for annual leave was considered. In that matter, Commissioner Thatcher stated that:

“[19] Further, I do not accept that, for the purposes of s.55(5), such loading of minimum rates of pay and an entitlement to unpaid leave has the same effect, or substantially the same effect, as the NES entitlement of paid annual leave. Whilst the incorporation of an amount equivalent to the payment for annual leave into the rate of pay may compensate employees financially for the loss of pay at the time of such leave, it may discourage them from actually taking leave as they will receive no income for the period of leave at the relevant time. Such financial compensation does not adequately recognise the importance of paid annual leave in the NES, namely for employees to have a financial incentive to take such leave for the purposes of rest and recreation.”

[23] I respectfully concur with the Commissioner’s reasoning that the absence of payment of wages for the period of the leave is a significant disincentive to the taking of the annual leave. While the Agreement provides that permanent employees must take at least half of their Annual Leave accrual each year 10 there is a serious concern that low paid employees will not be in a financial position to avail themselves of the full entitlement.

[24] Having determined that the provisions of the Agreement that specify annual leave without pay do not meet the requirements of ss.55(4) or 55(5) of the Act, I conclude that such provisions contravene the NES. I have reached the same conclusion in relation to the provision in the Agreement that provides no payment for public holidays. 11

[25] I have considered whether an undertaking pursuant to s.190 of the Act could effectively resolve this matter. While the employer did not specifically address this issue, it was put by SAMS that that the employer would revert back to the award payment structure and the NES/modern award leave entitlements in the event that the loaded rate prevents approval of the Agreement. For the purposes of the discussion that follows, I have assumed that the employer would be prepared to provide an undertaking in similar terms.

[26] Section 190 of the Act relevantly provides:

“190 FWA may approve an enterprise agreement with undertakings

Application of this section

(1) This section applies if:

(a) an application for the approval of an enterprise agreement has been made under section 185; and

(b) FWA has a concern that the agreement does not meet the requirements set out in sections 186 and 187.

Approval of agreement with undertakings

(2) FWA may approve the agreement under section 186 if FWA is satisfied that an undertaking accepted by FWA under subsection (3) of this section meets the concern.

Undertakings

(3) FWA may only accept a written undertaking from one or more employers covered by the agreement if FWA is satisfied that the effect of accepting the undertaking is not likely to:

(a) cause financial detriment to any employee covered by the agreement; or

(b) result in substantial changes to the agreement.

(4) .......

(5) .......”

[27] I am not satisfied that an undertaking would not cause financial detriment to the employees covered by the Agreement. While I accept that in financial terms the employees are in the same or perhaps a marginally better position overall with the loaded rate of pay, I nonetheless consider that the taking unpaid leave could well represent a financial hardship to low paid employees. However, even if I am incorrect in this interpretation of financial detriment, I consider that an undertaking would represent a substantial change to the Agreement, contrary to s. 190(3)(b) of the Act. This is because in the context of the Agreement as a whole, the 14% loading is a significant issue and one that has been germane to the approval of the Agreement by the employees.

Conclusion

[28] I am unable to approve the Agreement. In addition to the issue of the loading in lieu of payment for annual leave and public holidays not worked, I also consider that the absence of the 15% loading for part time employees working their contracted hours represents a significant disadvantage to employees compared to the modern award. In the event that I had been prepared to accept the undertaking in relation to the award rates of pay and the operation of the NES, I would conclude in any event that the Agreement does not meet the better off overall test due to the absence of the part time loading and the fact that the Agreement does not include sufficient benefits to offset this detriment.

[29] Further, I have serious concerns about the employees’ understanding of the proposed Agreement and therefore their genuine consent to it. The employees’ lack of reasonable access to the modern award; the employees’ agreement to a letter that incorrectly reflects the operation of the Agreement; and the confusion between the terms of the Agreement and the employer’s intentions (in relation to the duties required of a Level 1 employee and the operation of the hours of work provisions of the Agreement) all lead to a reasonable conclusion that the employees were not fully aware of the manner in which the Agreement affected their wages and conditions of employment.

[30] Finally, I note that the employer appeared to suggest that defects in the Agreement could be remedied by amending it. Section 586 of the Act allows the Tribunal to correct or amend any application or other document relating to a matter before FWA, however the amendment of substantive and significant provisions of an enterprise agreement is not a proper exercise of this discretion in light of the requirements of Part 2-4 of the Act. In particular, the Act sets out detailed requirements for the approval of the Agreement by employees including that they genuinely agree to it. The Act envisages that any issues with an enterprise agreement that prevent it from being approved will be remedied by undertakings given in accordance with the terms of s.190 of the Act.

[31] The application for approval of the Agreement is dismissed.

DEPUTY PRESIDENT

 1   Clauses 3.1 and 9.5 of the Agreement, respectively.

 2   The award also provides for specific penalties on Saturdays, Sundays and Public Holidays. These penalties will apply to the employees covered by the Agreement.

 3   At PN 64

 4   Clause 12.4(b)(iii). The modern award appears to contemplate that the 15% loading need not be paid in circumstances where hours in addition to the contracted hours are paid at overtime rates, however this only applies to employers who are not required to apply cl 25 Rostering. There is no evidence that the employer is not required to apply this clause.

 5   Correspondence dated 30 November

 6   Ibid

 7   Correspondence 30 November

 8   Sections 87, 88, 89, 90, 92 and 93 of the Act

 9   [2010] FWA 5235

 10   Cl 18.3

 11   Section 116 of the Act provides that payment must be made at the employee’s base rate of pay for the employee’s ordinary hours of work that would otherwise fall on the public holiday.

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